Chapter 2: Factors of Production Flashcards
Factors of production
The economic resources of land, labour, capital, and enterprise
Land
Any natural resource which is used in production eg. raw resources, gas, water, etc
Labour
Human effort used in producing goods and services eg. workers, miners, farmers, etc
Capital
Human-made goods used in production eg. factories, machines, buildings, etc
Enterprise
Risk bearing and key decision making in business eg. business owners
Consumer goods
Goods and services purchased by households for their own satisfaction
Occupationally mobile
Capable of changing use
Geographical mobile
Capable of moving from one location to another location
Mobility of land
- Occupationally mobile
eg. Land used for farming can be used for houses instead, trees can be used to make beds or railways - Geographically immobile
eg. Not possible to move a section of land from Sri Lanka to India. However, Some forms of land, in its broader meaning, can be moved to a certain extent. For example, the course of rivers can be diverted and wildlife can be moved.
Mobility of labour
Mobility varies.
Some workers may find it difficult to move from one area of the country to another, or from one country to another (geographical immobility), and some may find it difficult to switch from one type of job to another type (occupational immobility).
Causes of geographical immobility in labour
- Differences in the price and availability of housing in different areas and countries
- Family ties
- Differences in educational systems in different areas and countries
- Lack of information
- Restrictions on the movement of workers
Causes of occupational immobility in labour
- Lack of information
- Lack of appropriate skills and qualifications
Mobility of capital
Mobility varies according to the type of capital goods.
Mobility of enterprise
The mobility of enterprise depends on the mobility of
entrepreneurs.
Enterprise is the most mobile factor of production. The skills involved in being an entrepreneur can be applied in every industry.
Quantity
Amount
Quality
Degree of excellence
Quantity of land
The amount of physical land in existence does not change much with time. Other natural resources, however, can change quite significantly. Rainforests are currently declining at a rapid rate. Some natural resources are renewable whilst others are non-renewable.
Quality of land
Fertilizers can be applied to fields to increase the fertility of the land. The purity of rivers, and so the health of fish in the rivers, can be improved by stopping firms from polluting the rivers. Providing good drainage can increase the yield of fruit trees.
Quantity of labour
The quantity of labour is influenced by two key factors. One is the number of workers available and the second is the number of hours for which they work.
The number of available workers is determined by:
- Size of population
- Age structure of the population
- Retirement age
- School leaving age
- Attitude toward working women
The number of hours which people work is influenced by:
- Length of the average working day
- Whether they work full-time
- Duration of overtime
- Length of holidays taken by workers
- Amount of time lost to sickness
Quality of labour
The quality of labour can be improved as a result of better education, better training, more experience, and better healthcare. A healthier labour force will be able to concentrate more, be stronger for any manual tasks and will have fewer days off sick.
Quantity of capital
The quantity of capital is influenced by investment and tends to increase with time.
Gross investment
The total value of the output of capital goods produced.
Depreciation/capital consumption
The value of replacement capital.
Net investment
The value of the extra capital goods made. It is equal to gross investment minus depreciation.
Quality of capital
Advances in technology enable capital goods to produce higher output and a better quality output.
Quantity of enterprise
The quantity of enterprise will increase if there are more entrepreneurs. A good education system, including university degree courses in economics and business studies, may help to develop entrepreneurs in an economy. Lower taxes on firms’ profits (corporate taxes) and a reduction in government regulations may encourage more people to set up their own businesses.
Quality of enterprise
Improved if entrepreneurs receive better education, better training, better healthcare, and gain more experience.
Payment of labour
Wages
Payment of enterprise
Profit
Payment of land
Rent
Payment of capital
Interest
